Share price rockets in debut trading but some analysts question the social networking company’s implied valuation
The stunning performance of LinkedIn’s initial public offering (IPO) bodes well for expected US stock market launches by better known social networking companies such as Facebook.
Shares in LinkedIn soared on Thursday (May 19) from an offer price of $45 (£28) to $94.25 by the end of their first day‘s trading, a 109 per cent rise.
But there was still a sense of ‘once bitten, twice shy’ as the early numbers were digested by brokers and analysts.
LinkedIn’s debut on the New York Stock Exchange saw the company valued at around $9bn. This is more than 35 times its most recently reported annual sales of $243m, a metric with inevitable echoes of the first 'dot com' bubble.
The professionally focused site is recognised as having much more solid foundations than many of the Web 1.0 companies that reaped IPO riches a decade ago but delivered little more than a business plan.
Many of the bankers not just promoting but also buying up the stock already use its network and tools for connecting to colleagues, and the company is now generating revenues. It has more than 100 million registered members overall (although, as ever, with social networking sites many of those accounts will be barely or in-active).
Several analysts also pointed out that LinkedIn remains, in financial jargon, relatively ‘tightly held’, with only 10 per cent of its shares being released in the IPO thereby accentuating demand by restricting supply. By contrast, the 2004 Google IPO released 20 per cent of that company’s stock.
Nevertheless, perhaps himself spotting a touch of ‘irrational exuberance’ in the price rise, even LinkedIn’s CEO Jeff Weiner gave his company’s debut stock performance a cautious welcome.
"This isn't necessarily indicative of anything," he told the Wall Street Journal. "The market will do what it will do."
Most leading social networking companies have yet to take the first steps towards an IPO by filing an intention to go public. Companies in this holding pattern include Twitter and Groupon as well as Facebook.
Internet telecoms group Skype had filed plans for a stock offer prior to its acquisition by Microsoft, but the highest profile Web 2.0 company in such a formal holding pattern now is the music service Pandora.